Blue Star Ltd Q2 FY2025 Concall Summary

Key Takeaways

• Strong quarter, guidance intact: Revenue grew >20%, operating profit ~22%, and net profit >36%; FY25 top-line growth of 20–25% and 8.5–9% operating margin guidance reaffirmed.
• Room AC is the star, but the segment story is split: Room AC revenue surged ~25%, yet Segment-II grew only 5% because commercial refrigeration was disrupted by regulatory changes and a large export order from last year did not repeat.
• Regulatory disruption hit commercial refrigeration, now resolved: BIS/Quality Control Order changes on water coolers and deep freezers compressed margins and delayed revenue; management calls it a "momentary problem" already normalized from October.
• Supply chain fragility is being managed with cash: ~₹300 Cr was invested in component inventory to buffer against capacity-constrained Indian supply chains and clearance delays for Chinese players; normalization is expected only by the March '25 balance sheet.
• What to watch next quarter: Whether the US export story gains clarity post-elections, the pace of Segment-III recovery, and any decision on segment-level disclosure.

Room AC: The Engine and Its Limits

• Demand drivers are structural, not cyclical: Management attributes the surge to rising AC exposure in restaurants, cars and offices, stable prices, consumer finance covering >50% of sales, and declining power consumption under the Energy Saving Scheme.
• Market share ambition trimmed: The original FY25 goal of 15% will not be reached; management now expects to close around 14%, partly because GFK data misses B2B sales that slowed during elections.
• Channel is lean, not loaded: Over half of sales flow through organized retailers with robust systems; dealers lift according to need, and the Sri City plant enables overnight southern-state deliveries, so no inventory dump is building.
• Product strategy is full-spectrum: The direction is to have products at every price point, from mass to premium.

Thiagarajan: "The question I am not able to answer. Perhaps: A) the temperature conditions or the way the people are getting used to air conditioning in other ways... B) The prices have remained stable. C) Huge consumer finance options are available... And most importantly, the power consumption has been coming down, thanks to the Energy Saving Scheme."

Commercial Refrigeration: A One-Time Regulatory Bump

• Water coolers hit by BIS rule change: A March '27 regulation changed outlet temperature standards, forcing old-spec inventory to be pushed to dealers at cost, old raw materials to be consumed at compressed margins, and new products to be manufactured quickly. Management calls it a "C class thing" and says it is already resolved from October.
• Deep freezers hit by indigenization cost: A January regulation drove Blue Star to fully manufacture in India and expand the range to 100L and 200L, but indigenization makes products expensive versus Chinese imports, and margins are taking time to improve.
• Growth story intact despite the noise: Underlying demand from ice cream, frozen foods, pharma, HoReCa and retail continues to expand; management insists the disruption was "ephemeral in nature."

Thiagarajan: "Those are ephemeral in nature and there is nothing to worry about the overall growth prospects for Commercial Refrigeration."

Segment Performance and the Disclosure Debate

• Segment-I margin jumped on mix: Margins rose to 8.3% of revenue from 6.1% a year ago, driven by commercial air conditioning equipment performing extremely well and a lower weightage of lower-margin projects in the first half. Full-year guidance stays at 7–7.5%.
• Segment-II growth was dragged by two one-offs: Room AC revenue grew ~25%, but Segment-II overall grew only 5% because commercial refrigeration was disrupted by BIS changes and a significant export order of Room ACs to the Middle East in Q2 last year was absent this year.
• Segment-III recovery pushed to Q4: The business, dependent on imported hi-tech capital equipment, saw demand delayed by post-election supply chain restrictions and uncertainties; growth is expected to revive only in Q4 FY25.
• Disclosure remains a friction point: Management is internally debating whether to report Room AC, Commercial Refrigeration and Commercial Air Conditioning separately, but cites competitive concerns: multinational competitors would gain information while disclosing nothing in return. No commitment was made; any change requires audit committee and board approval.

Thiagarajan: "I keep raising this in many forums that multinationals who are my competitors, I won't be able to get any information whatsoever, whereas they will be able to get every information that is disclosed by us."

International Business: Early, Small, and Uncertain

• Europe remains slow: The market continues to be sluggish, with demand revival indications pointing 12–18 months out. Product testing and validation for Europe and the US is progressing well.
• US shipments have begun, but the outlook is opaque: Shipments to one US customer (driven by a refrigerant migration deadline) have commenced, and a second customer is in validation. However, management is candid about uncertainty: the Trump administration's "Make in America" stance creates an unknown that will take weeks to clarify, and Blue Star is a small player compared to Chinese, Japanese and Korean competitors.

Thiagarajan: "The whole Trump administration, how they will view. It's a clear thing of 'Make in America', not even 'Make in Mexico' and how the industry there will proceed with. I can tell you that there are Chinese players, Japanese players, Korean players and compared to them we are very small. What is going to happen? We do not know."

Supply Chain, Working Capital, and the Inventory Bet

• ~₹300 Cr invested in component inventory: The working capital increase was a deliberate choice to stock components and ensure the manufacturing line is never starved, given persistent supply chain disruptions and non-tariff barriers.
• Indian supply chains are capacity- and quality-constrained: Compressors, copper tubes and electronics face domestic constraints, while Chinese players who have invested in India face clearance and visa delays. The vendor ecosystem in Sri City and Chennai is developing but taking time.
• Normalization is a March '25 story: Higher inventory is expected to continue through the end of summer, with balance-sheet normalcy visible only by March 2025. Management does not expect a smooth supply chain soon, given a 20% CAGR projection through 2030 and potential 25–30% growth next year.

Guidance & Commitments

Key Metrics